A major Chinese aluminium producer, Chiping Xinfa Huayu Alumina (Xinfa) has elected to excercise its option to acquire 10% of the issued capital in Australian company Cape Alumina, in a A$4.625 million ($3.6 million) deal with Metallica Minerals, said Metallica on Wednesday.

Metallica, which will retain a 40% stake in Cape Alumina after the Xinfa transaction, will receive total payments of A$4.625 million, including the option fee of A$250,000 received on August 24, 2006.

Xinfa on Wednesday will make a second payment to Metallica of A$250,000 and pay the balance of A$4.125 million within 90 days.

Cape Alumina Chief Executive Paul Messenger said: "Cape Alumina's close link with Xinfa may also lead to a major off-take agreement for bauxite eventually produced by Cape Alumina. Xinfa is one of the largest bauxite importers in China, which it uses to feed its Chiping alumina refinery and aluminium smelter complex in Shandong Province, eastern China."

Last year, Xinfa imported about 5 million mt of bauxite, while official statistics show that China imported 9.7 million mt of bauxite in 2006, a figure that is expected to grow further in 2007 and beyond, Metallica said.

Cape Alumina anticipates a number of its other 16 exploration permit applications in Cape York to be granted in the first half of 2007 with exploration drilling program currently being planned and a scoping study into mining, beneficiation and export of bauxite in progress.